Wednesday, January 27, 2010

1/27/10 Midday Report: In bid to increase approval ratings, Obama to unveil Apple Tablet at State of the Union address as a panacea for US budget problems

The market continues to limp it's way down as investors await tonight's State of the Union address where President Obama is likely to whip out his small business tax breaks and smack them against a non-defense discretionary spending budget freeze.  This budget freeze supposedly applies to 17% of the Federal budget and will have enough loopholes in it to make it less well-followed than the failed reality TV series: Federal Reserve Bank Governor Idol (though Sandra Pianalto yelling at Chuck Evans for leaving the toilet seat up in the house was must see TV).  It does likely mean that the president won't be getting the X-Box he asked for for his birthday as times are tough.  In addition to Obama going after the budget tonight, Apple is set to finally release their new tablet which has techies more excited than they were for the release of Avatar, extra-strength Accutane, or Olivia Munn's Princess Leia photos.  Honestly, Money McBags has not seen anything this eagerly anticipated since the release of those vapidly redundant Harry Potter books or Hanna Hilton's first girl on girl scene (and Money McBags gave that two bums up).  The tablet is supposed to be so awesome that it is said to have cured Steve Jobs' cancer and to run on the tears of baby unicorns.  And finally, the FOMC is meeting today with Bernanke expected to keep rates at their current 0 to 25bps or what we in the business call "free."

While the market awaits that news, there were some macro-reports that came out which highlight the worries people are starting to get about the economy.  New home sales fell in December by 7.6% and were short of expectations as analysts expected sales to rise (and I believe this now makes analysts' incorrect prediction of the simple 50-50 guess at the direction of home sales statistically significant at the 95% level, so they've got that going for them).  Home sales were down as a result of the government tax breaks drying up and the forgotten fact that no one has any money.  Plus as the job market is more frozen than an Alaskan's nuts after a midnight skinny dip in Lake Chilkoot (and yes that is really the name of Lake in Alaska), people simply aren't moving.

In world news, Greece teeters on bankruptcy causing investors to stock up on credit default swaps of sovereign debt and all the tzatziki sauce on which they can get their hands.  Greece is trying to remedy the situation by pawning off 25B of Euro bonds to China as well as stadium naming rights to the Parthenon, and the Golden Fleece.  The flight to quality and away from sovereign debt like Greece has caused one month treasuries to have a negative yield for the first time since March of last year which is about as good of an omen for the stock market as stairs are for Stephen Hawking.

Berkshire Hathaway's B shares are shooting up today like a young Drew Barrymore as word is they will be added to the S&P 500 index after their acquisition of BNI.  Also, Toyota announced they will be shutting down production on eight lines of cars which make up 57% of their 2009 sales due to problems with the accelerator pedals seemingly caused by something called a friction lever.  A friction lever joke is way too easy for Money McBags but this bears watching as the street wonders if Toyota has started to slack on their quality which has been their competitive advantage.  In other stock news, YHOO turned a profit despite a 4% drop in year over year revenue.  Revenue was up 10% sequentially and management said they see search revenue stabilizing so any investor who wants to own a portfolio of market laggards, now is your time to buy.

As for small cap stocks, ZAGG once again continues to trade down making Money McBags' bet on 12/31/09 seem even better as it was likely risk free.  So just remember, betting against Money McBags is like challenging Greg Oden to a cock off (very NSFW or actually anyone, but the news needs reporting), you can't possibly win.  And SMCI put up a huge quarter.  Now SMCI basically makes custom servers and server solutions for businesses, usually being the first to market with new INTC chips, hence the Nehalem release has been driving new business for them.  They just put up $.22 of earning per share on $182MM of revenue (up 42% y/y), easily beating analyst estimates of $.17 and $160MM.  The company also gave above street guidance of $.18 to $.21 eps for next Q and $180MM of revenue in what is typically a down quarter for the industry.  SMCI is an extremely well run little niche company with $82MM of cash on their balance sheet and no debt.  They have a competitive advantage in that they are small and nimble (like Speedy Gonzales or the slightly smaller and more nimble, Shawn Johnson) and therefore can be first to market and customize at the same time.  The company may be peaking but on the call management said they could get back to 30% growth rates as the end of the year should be good for them with AMD and INTC introducing new products.  Estimates for fiscal 2011 are for around $1.10 and they are currently trading at 13 or so times that not including their cash after today's run up.  This should be a cyclical company and this may be the top of the cycle as they have just strung together some very good quarters so Money McBags would not be buying today as the easy money has likely been made.  That said, this really is a quality company and has proven over time that they are good at what they do and well managed.  Should there be a dip, this is definitely a company to accumulate but either way it is worth doing your own research here as they could continue to outperform.


Anonymous said...

What is a bigger impediment, stairs to Stephen Hawking or quantum physics to everyone else?

Anonymous said...

You have hit the mark. In it something is also to me your idea is pleasant. I suggest to take out for the general discussion.